Tax Treaty Characterization of Income Derived from Cloud Computing and 3D Printing and the Spanish Approach

Abstract

The digitalization of the economy is giving rise to several tax issues. Although some problems are typical and have been highlighted by tax experts for many years, with the tremendous growth of the digital economy they have only been exacerbated. Nevertheless, there are specific issues that have arisen due to the digitalization of the economy, such as the nexus issue for permanent establishments, the tax treatment of data collected through the Internet and the appropriate characterization of income derived from new business models. This article analyses the tax treatment of two of these models that are widespread, namely cloud-based services and 3D printing services. After noting the relevant characteristics of the tax issues, the article studies the treatment under tax treaties, taking into account the OECD Model Convention and the Commentary thereon, as well as the position of the Spanish tax administration. This study uses the tax treatment of software and digital products, as addressed in the Commentary on Article 12 of the OECD Model, and the Spanish Observation to that Commentary, in order to build a framework of the potential tax treatment among business profits, royalties and capital gains. Finally, the author defends the characterization of both cloud computing and 3D printing payments as a tool to align tax with the place of value creation through a new interpretation of the concept of royalties in the Commentary on the OECD Model following the approach of the Spanish tax administration.